Brookfield Investment Management

Transcription

1 Brookfield Investment Management 2013 Brookfield High Yield Strategic Income Fund BHY.UN Interim Financial Statements For the period from January 1, 2013 to June 30, 2013

2 NOTICE TO READER These interim financial statements and related notes of Brookfield High Yield Strategic Income Fund (the Fund ) for the six month period ended June 30, 2013 have been prepared by management of the Fund. The external auditors of the Fund have not audited or reviewed these interim financial statements. CONTENTS Financial Statements 2 Notes to Financial Statements 12 Fund Information Interim Financial Statements 1

3 STATEMENT OF NET ASSETS As at June 30, 2013 and December 31, 2012 (Unaudited, Expressed in Canadian Dollars) $ $ Assets Investment portfolio at fair value, (Cost: $117,069,593; $120,036,932) 127,334, ,084,069 Cash and cash equivalents 238,482 6,081 Other receivables 39, ,612, ,090,150 Liabilities Distributions payable (Note 13) 2,100,313 2,100,313 Accounts payable and accrued liabilities 907,438 1,130,614 3,007,751 3,230,927 Net assets, representing Unitholders' equity 124,604, ,859,223 Number of Units outstanding (Note 12) 12,925,000 12,925,000 Net assets per Unit $ 9.64 $ 9.82 See accompanying notes to financial statements. Approved on behalf of the Manager, Brookfield Investment Management (Canada) Inc. George E. Myhal Director Gail Cecil Director 2013 Interim Financial Statements 2

4 STATEMENT OF OPERATIONS For the six months ended June 30, 2013 (Unaudited, Expressed in Canadian Dollars) 2013 $ Investment income Fee income 39,870 39,870 Expenses (Note 9) Forward fees 350,377 Hedging fees 111,515 Service fees 324,718 Management fees 229,331 Operating costs 122,875 1,138,816 Net investment loss (1,098,946) Net realized and unrealized gain on investments Realized gain on sale of investments 2,802,689 Change in unrealized appreciation of investments 242,649 3,045,338 Increase in net assets from operations for the period 1,946,392 Increase in net assets from operations per Unit $ 0.15 The Fund began operations on June 19, 2012; therefore there is no comparable period. See accompanying notes to financial statements Interim Financial Statements 3

5 STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2013 (Unaudited, Expressed in Canadian Dollars) 2013 $ Net assets, beginning of period 126,859,223 Increase in net assets from operations 1,946,392 Capital transactions Amounts paid for redemption of Units - Distribution to Unitholders Return of capital payable (2,100,313) Return of capital paid (2,100,323) (4,200,636) Net assets, end of period 124,604,979 The Fund began operations on June 19, 2012; therefore there is no comparable period. See accompanying notes to financial statements 2013 Interim Financial Statements 4

6 STATEMENT OF INVESTMENTS As at June 30, 2013 (Unaudited, Expressed in Canadian Dollars) Average Cost Fair value $ $ Investment portfolio 117,069, ,334,378 Cash and cash equivalents 238,482 Other assets and liabilities (2,967,881) Net assets, end of period 124,604,979 The Fund began operations on June 19, 2012; therefore there is no comparable period. See accompanying notes to financial statements As a result of the Forward Agreement described in Note 4, the net asset value of the Fund s investment portfolio (which includes the Forward Agreement) is equal to the net asset value of the High Yield Strategic Trust (as described in Note 1). The investment portfolio of $ 127,334,378 presented above in this Statement of Investments differs from the net asset value of High Yield Strategic Trust. An explanation of this difference can be found in Note 4 of these financial statements. The investment portfolio consists of total investments of the Common Share Portfolio of $125,414,531 (Note 4) and the gain on the forward agreement at the fair value of $1,919,847 (Note 4), the sum of which is $127,334,378. The net assets of the High Yield Strategic Trust as at June 30, 2013 are listed below: 2013 Interim Financial Statements 5

7 STATEMENT OF INVESTMENTS High Yield Strategic Trust As at June 30, 2013 (Unaudited, Expressed in Canadian Dollars) Quantity Security Average Cost $ Fair Value $ Net Assets % BONDS United States Dollar Denominated 1,050,000 AAR Corp. 7.25% 1/15/2022 1,064,043 1,188, ,200,000 AK Steel Corp. 7.63% 5/15/2020 1,045,718 1,076, ,850,000 Alpha Natural Resources Inc. 6.25% 6/01/2021 1,619,427 1,561, ,000 American Axle & Manufacturing Inc. 7.75% 11/15/ , , ,550,000 American Axle & Manufacturing Inc. 6.25% 3/15/2021 1,632,549 1,655, ,450,000 ArcelorMittal 6.13% 6/01/2018 1,504,372 1,580, ,850,000 Arch Coal Inc. 7.25% 6/15/2021 2,615,149 2,441, ,225,000 Associated Materials LLC 9.13% 11/01/2017 1,249,216 1,347, ,750,000 Avis Budget Car Rental LLC 8.25% 1/15/2019 1,915,921 1,980, ,100,000 Berry Plastics Corp. 9.75% 1/15/2021 1,227,216 1,309, ,600,000 Boyd Gaming Corp. 9.00% 7/01/2020 1,587,948 1,687, ,200,000 BreitBurn Energy Partners L.P. 8.63% 10/15/2020 1,319,750 1,345, ,000 BreitBurn Energy Partners L.P. 7.88% 4/15/ , , ,450,000 Cablevision Systems Corp. 8.63% 9/15/2017 1,649,149 1,729, ,900,000 Casella Waste Systems Inc. 7.75% 2/15/2019 1,841,837 1,896, ,750,000 CCO Holdings LLC 6.63% 1/31/2022 1,905,960 1,929, ,950,000 CenturyLink Inc. 7.65% 3/15/2042 1,983,993 1,955, ,725,000 Cenveo Corp. 8.88% 2/01/2018 1,716,991 1,774, ,250,000 Chrysler Group LLC 8.25% 6/15/2021 2,354,645 2,606, ,550,000 Community Health Systems Inc. 7.13% 7/15/2020 1,636,920 1,680, ,275,000 Cincinnati Bell Inc. 8.75% 3/15/2018 2,248,751 2,395, ,450,000 CityCenter Holdings LLC 7.63% 1/15/2016 1,563,985 1,614, ,000 Clear Channel Communications Inc. 9.00% 3/01/ , , ,000 Coleman Cable Inc. 9.00% 2/15/ , , ,600,000 Crosstex Energy L.P. 8.88% 2/15/2018 1,731,899 1,787, Interim Financial Statements 6

8 1,500,000 Crown Cork & Seal Co. Inc. 7.38% 12/15/2026 1,615,466 1,730, ,350,000 Cumulus Media Holdings Inc. 7.75% 5/01/2019 1,292,270 1,381, ,400,000 DineEquity Inc. 9.50% 10/30/2018 1,573,829 1,660, ,200,000 DJO Finance LLC 9.88% 4/15/2018 1,208,824 1,314, ,500,000 EV Energy Partners L.P. 8.00% 4/15/2019 1,525,392 1,594, ,000 FairPoint Communications Inc. 8.75% 8/15/ , , ,100,000 First Data Corp % 1/15/2021 2,132,768 2,215, ,000 FMG Resources (August 2006) Pty Ltd. 6.88% 4/01/ , , ,925,000 Freescale Semiconductor Inc. 8.05% 2/01/2020 1,933,544 2,058, ,150,000 Frontier Communications Corp. 7.13% 3/15/2019 2,243,472 2,370, ,675,000 HCA Inc. 8.00% 10/01/2018 1,919,030 2,034, ,000 Health Management Associates Inc. 7.38% 1/15/ , , ,875,000 Hexion US Finance Corp. 9.00% 11/15/2020 1,657,992 1,876, ,675,000 Intelsat Luxembourg SA 7.75% 6/01/2021 1,784,753 1,779, ,000 ION Geophysical Corp. 8.13% 5/15/ , , ,100,000 Iron Mountain Inc. 8.38% 8/15/2021 1,239,466 1,231, ,000 Iron Mountain Inc. 5.75% 8/15/ , , ,000 Isle of Capri Casinos Inc. 7.75% 3/15/ , , ,875,000 Jaguar Land Rover PLC 8.13% 5/15/2021 2,004,936 2,136, ,000 Key Energy Services Inc. 6.75% 3/01/ , , ,625,000 Kindred Healthcare Inc. 8.25% 6/01/2019 1,646,731 1,735, ,000 L Brands Inc. 7.60% 7/15/ , , ,200,000 Lamar Media Corp. 5.88% 2/01/2022 1,267,709 1,303, ,250,000 Legrand France SA 8.50% 2/15/2025 1,675,740 1,657, ,850,000 Level 3 Communications Inc. 8.88% 6/01/2019 1,913,763 2,029, ,450,000 Levi Strauss & Co. 6.88% 5/01/2022 1,522,618 1,655, ,400,000 LINN Energy LLC 7.75% 2/01/2021 1,487,932 1,473, ,600,000 Masonite International Corp. 8.25% 4/15/2021 1,688,948 1,818, ,350,000 Mediacom Broadband LLC 6.38% 4/01/2023 1,338,998 1,404, ,000 Mediacom LLC 9.13% 8/15/ , , ,650,000 MetroPCS Wireless Inc. 6.63% 4/01/2023 1,726,186 1,773, Interim Financial Statements 7

9 1,475,000 MGM Resorts International 8.63% 2/01/2019 1,618,301 1,750, ,000,000 Michaels Stores Inc. 7.75% 11/01/2018 1,053,620 1,127, ,350,000 Millar Western Forest Products Ltd. 8.50% 4/01/2021 1,057,266 1,406, ,579,250 MTR Gaming Group Inc % 8/01/2019 1,664,975 1,751, ,500,000 Mueller Water Products Inc. 7.38% 6/01/2017 1,546,244 1,616, ,600,000 New Albertsons Inc. 7.75% 6/15/2026 1,282,621 1,331, ,000 New Albertsons Inc. 8.00% 5/01/ , , ,500,000 Niska Gas Storage US LLC 8.88% 3/15/2018 1,540,651 1,606, ,100,000 NRG Energy Inc. 8.50% 6/15/2019 1,165,238 1,244, ,000 Ply Gem Industries Inc. 8.25% 2/15/ , , ,200,000 Precision Drilling Corp. 6.63% 11/15/2020 1,285,752 1,284, ,700,000 PulteGroup Inc. 6.38% 5/15/2033 1,731,409 1,690, ,650,000 Reynolds Group Holdings Ltd. 9.00% 4/15/2019 1,783,951 1,788, ,100,000 Service Corp. International 8.00% 11/15/2021 1,294,767 1,356, ,000 Tekni-Plex Inc. 9.75% 6/01/ ,096 1,015, ,450,000 Terex Corp % 12/15/2018 1,484,590 1,652, ,000 Terex Corp. 6.50% 4/01/ , , ,325,000 Terex Corp. 6.00% 5/15/2021 1,322,284 1,412, ,100,000 Trinidad Drilling Ltd. 7.88% 1/15/2019 1,216,724 1,218, ,275,000 Trinseo Materials Operating SCA 8.75% 2/01/2019 1,311,329 1,283, ,775,000 United Rentals North America Inc. 7.63% 4/15/2022 1,905,115 2,022, ,800,000 USG Corp. 9.75% 1/15/2018 1,933,737 2,157, ,600,000 Verso Paper Holdings LLC 11.75% 1/15/2019 1,734,087 1,738, ,310,000 W&T Offshore Inc. 8.50% 6/15/2019 1,401,214 1,426, ,200,000 Windstream Corp. 7.00% 3/15/2019 2,275,072 2,312, ,300,000 Xerium Technologies Inc. 8.88% 6/15/2018 1,300,028 1,385, ,000 YCC Holdings LLC 10.25% 2/15/ , , Euro Denominated 116,767, ,850, ,000 Ardagh Packaging Finance PLC 9.25% 10/15/2020 1,007,751 1,154, ,000 Carlson Wagonlit BV 7.50% 6/15/2019 1,008,389 1,112, Interim Financial Statements 8

10 700,000 Greif Luxembourg Finance SCA 7.38% 7/15/ ,750 1,080, ,200,000 Ineos Group Holdings Ltd. 6.50% 8/15/2018 1,590,796 1,578, ,000 Kerling PLC 10.63% 2/01/ , , ,000 KM Germany Holdings GmbH 8.75% 12/15/2020 1,003, , ,000 Numericable Finance & Co. SCA 12.38% 2/15/ , , ,050,000 Obrascon Huarte Lain SA 7.63% 3/15/2020 1,367,081 1,492, ,000 Orion Engineered Carbons Bondco GmbH 10.00% 6/15/ ,078 1,079, ,000 RPG Byty s.r.o. 6.75% 5/01/ , , ,200,000 Servus Lux Holding SCA 7.75% 6/15/2018 1,607,377 1,616, ,000,000 Spie BondCo 3 SCA 11.00% 8/15/2019 1,363,844 1,460, ,000 Unitymedia Hessen GmbH & Co. 9.50% 3/15/ ,728 1,063, ,005,000 Wind Acquisition Finance SA 11.75% 7/15/2017 1,232,893 1,424, British Pounds Denominated 15,498,305 16,571, ,000 Cabot Financial (Luxembourg) SA 10.38% 10/01/2019 1,216,029 1,319, ,000,000 DFS Furniture Holdings PLC 7.63% 8/15/2018 1,579,212 1,658, ,000 Dixons Retail PLC 8.75% 9/15/2017 1,210,090 1,348, ,000 Lowell Group Financing PLC 10.75% 4/01/ ,475 1,053, ,000 Matalan Finance PLC 8.88% 4/29/2016 1,152,183 1,206, Canadian Dollar Denominated 6,089,989 6,585, ,400,000 Cascades Inc. 7.75% 12/15/2017 1,453,437 1,539, Swiss Franc Denominated 1,453,437 1,539, ,000 Matterhorn Mobile SA 6.75% 5/15/ ,803 1,026, PRIVATE PLACEMENTS United States Dollar Denominated 979,803 1,026, ,460,000 Bumble Bee Acquisition Corp. 9.00% 12/15/2017 1,485,805 1,623, ,244,000 C&S Group Enterprises LLC 8.38% 5/01/2017 1,304,948 1,389, ,600,000 Calfrac Holdings L.P. 7.50% 12/01/2020 1,583,685 1,671, ,750,000 Chester Downs & Marina LLC 9.25% 2/01/2020 1,732,260 1,772, Interim Financial Statements 9

11 1,125,000 Clear Channel Worldwide Holdings Inc 7.63% 3/15/2020 1,116,803 1,219, ,000 Frac Tech Services LLC 8.13% 11/15/ , , ,500,000 Hercules Offshore Inc % 10/15/2017 1,530,108 1,689, ,575,000 Palace Entertainment Holdings LLC 8.88% 4/15/2017 1,660,657 1,696, ,700,000 Pittsburgh Glass Works LLC 8.50% 4/15/2016 1,624,783 1,777, ,500,000 Realogy Group LLC 7.88% 2/15/2019 1,520,894 1,671, ASSET-BACKED AND MORTGAGE-BACKED SECURITIES United States Dollar Denominated 14,363,415 15,351, ,000 ACE Securities Corp., Class 'A2D' 0.47% 5/25/ , , ,731,000 GSAMP Trust, Class 'A2B' 0.35% 8/25/ ,704 1,064, ,225 Securitized Asset Backed Receivables LLC Trust, Class 'A2A' 0.33% 5/25/ , , ,525 Securitized Asset Backed Receivables LLC, Class 'A2C' 0.35% 7/25/ ,210 56, ,830,558 Securitized Asset Backed Receivables LLC, Class 'A2B' 0.35% 12/25/ , , ,267 Securitized Asset Backed Receivables LLC Trust, Class 'A2C' 0.41% 12/25/ , , ,191,411 Securitized Asset Backed Receivables LLC, Class 'A2' 0.43% 2/25/ , , ,272,522 WaMu Mortgages Pass-Through Certficates, Series '2006-AR13', Class 'A1' 1.07% 10/25/ , , ,806,171 MASTR Asset Backed Securities Trust, Class 'A3' 0.36% 11/25/ ,172 1,109, ,257,196 MASTR Asset Backed Securities Trust, Class 'A3' 0.31% 8/25/ , , ,152 MASTR Asset Backed Securities Trust, Class 'A5' 0.44% 8/25/ , , ,942,323 MASTR Asset Backed Securities Trust, Class 'A5' 0.41% 10/25/ ,685 1,143, ,990 GSAMP Trust, Class 'A2B' 0.30% 3/25/ , , EQUITIES United States Dollar Denominated 7,165,445 8,475, ,950 AT&T Inc. 427, , ,000 Cedar Fair L.P. 429, , ,660 CenturyLink Inc. 424, , ,000 Frontier Communications Corp. 961, , ,600 Huntsman Corp. 460, , ,650 Iron Mountain Inc. 452, , TERM LOANS 3,156,104 3,164, Interim Financial Statements 10

12 United States Dollar Denominated 573,563 Albertsons LLC. Term Loan B 5/21/ , , ,000,000 FairPoint Communications Inc. Term Loan B 2/14/ ,399 1,031, ,700,000 Inventiv Health Inc. Term Loan B 8/04/2016 1,740,885 1,757, ,295,571 3,389, Total investments 168,769, ,955, Liabilities, net of other assets (50,301,052) (39.39) Total Net Assets of High Yield Strategic Trust 127,654, See accompanying notes to financial statements 2013 Interim Financial Statements 11

13 NOTES TO FINANCIAL STATEMENTS 1. THE FUND Brookfield High Yield Strategic Income Fund (the Fund ) is an investment fund established under the laws of the Province of Ontario pursuant to a Declaration of Trust dated May 23, High Yield Strategic Trust (the Trust ), and together with the Fund (the Funds ), is an investment trust established under the laws of the Province of Ontario pursuant to a Declaration of Trust dated May 23, The Fund effectively began operations on June 19, 2012 when it completed an initial public offering of 12,500,000 units (the Units ) and subsequently issued 425,000 Units pursuant to an overallotment option on June 29, 2012 at $10.00 per Unit (the Of fering ), for gross proceeds of $129.3 million and net proceeds of $121.7 million after deducting issuance costs of approximately $7.6 million. The investment objectives of the Fund are to (i) provide holders of Units ( Unitholders ) with tax - advantaged quarterly cash distributions; (ii) maximize total return for Unitholders through distributions and capital appreciation; and (iii) preserve capital of the Fund by obtaining economic exposure to a portfolio (the Portfolio ) comprised primarily of North American high yield debt. Brookfield Investment Management (Canada) Inc. ( BIM Canada ) is the manager (the Manager ) and the trustee of the Funds. Brookfield Investment Management Inc. ( BIM ) is the investment manager (the Investment Manager ) of the Funds. The Investment Manager makes all of the investment and trading decisions on behalf of the Funds. The Fund obtained exposure to the Portfolio through a forward agreement (the Forward Agreement ) as explained below and in Note 4. The Fund invested the net proceeds of the Offering in a portfolio of common shares of Canadian public companies (the Common Share Portfolio ). The Fund then entered into the Forward Agreement with a Canadian chartered bank (the Counterparty ) pursuant to which the Counterparty agreed to pay to the Fund on the scheduled settlement date of the Forward Agreement as the purchase price for the Common Share Portfolio, an amount based on the value of the Units of the Trust. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Part V of the Canadian Institute of Chartered Accountants ( CICA ) Handbook - Canadian generally accepted accounting principles ( GAAP ). The following is a summary of significant accounting policies followed by the Fund in the preparation of these financial statements: Valuation of investments Investments are deemed to be classified as held for trading in accordance with CICA Handbook Section 3855, Financial Instruments Recognition and Measurement ( Section 3855 ) and are recorded at their fair value. In the case of publicly-traded securities, such as the investments pledged under the Forward Agreement, fair value means the closing bid price for long positions and the closing ask price for short positions. The Fund, through its exposure to the economics of the Trust, is also exposed to non-publicly traded securities. For bonds and bank debt, fair value means the bid price for long positions and the ask price for short positions, provided by independent security pricing services or broker quotes. Securities for which reliable quotations are not readily available or not traded in an active market are valued at fair value using established valuation procedures. All investment transactions are accounted for on the trade date. Realized gains and losses from investment transactions and unrealized appreciation or 2013 Interim Financial Statements 12

14 depreciation in the value of investments are calculated on an average cost basis, excluding transaction costs and the effect of foreign exchange fluctuations, which are disclosed separately. Other assets and liabilities For the purpose of categorization in accordance with Section 3855, accrued investment income is recorded at cost or amortized cost. Similarly, margin payable, distributions payable and accounts payable and accrued liabilities are deemed to be other financial liabilities and are reported at amortized cost. Investment transactions and income recognition All investment transactions are accounted for on the trade date. Dividend income is recognized on the ex-dividend date and interest income is recognized as earned. Transaction costs Transaction costs, such as brokerage commissions incurred on the purchase and sale of securities by the Fund, are expensed and are included in operating expenses in the Statement of Operations. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Foreign currency translation Investments and other assets denominated in foreign currencies are translated into Canadian dollars using the rate of exchange prevailing on the trade date. Investment transactions and income and expenses are translated at the rate of exchange on the date of such transactions. The fair values of investments and other assets and liabilities in foreign currencies are translated at the period-end exchange rates. All realized and unrealized foreign exchange adjustments are recorded in the Statement of Operations. Forward foreign currency contracts Forward foreign currency contracts, if applicable, are valued at current market value on each valuation date. The value is determined as the gain or loss that would be realized if, on the valuation date, the position of the forward foreign currency contracts were closed out. Forward Agreement The fair value of the Forward Agreement (see Note 4) is the gain or loss that would be realized on the valuation date if the contract were closed out or expired. The unrealized appreciation (depreciation) and the realized gains (losses) o n partial settlements of the Forward Agreement are included in the Statement of Operations. Accounting estimates The preparation of the financial statements in accordance with Canadian GAAP requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates were used in the valuation of the investments. Actual results could differ from those estimates. 3. NET ASSETS PER UNIT The net assets per Unit are the net assets of the Fund divided by the number of Units outstanding as at the end of the financial period. Any difference between the net asset value per Unit for pricing purposes and the net assets per Unit on the Statement of Net Assets is due to different pricing methodologies used to calculate the net assets for financial reporting purposes (as described in Notes 2 and 4) and the net asset value used for Fund pricing purposes. The following table reconciles the 2013 Interim Financial Statements 13

15 difference between the published net asset value per Unit and the net assets per Unit reflected in the financial statements of the Fund as at June 30, 2013 and December 31, 2012: June 30, 2013 December 31, 2012 Total Per Unit Total Per Unit $ $ $ $ Net asset value 125,029, ,249, Section 3855 adjustments (424,391) (0.03) (390,087) (0.03) Net assets per Statement of Net Assets 124,604, ,859, FORWARD AGREEMENT In order to achieve its investment objectives, the Fund obtained economic exposure to the returns of the Trust by investing the net proceeds of its initial public offering in the Common Share Portfolio and entering into the Forward Agreement with the Counterparty. As at June 30, 2013, the Counterparty had a credit rating of A+ according to Standard and Poor s Rating Services. The Fund does not invest directly in the Trust. By virtue of the Forward Agreement, the returns of the Fund are dependent upon the economic performance of the Trust and the Portfolio. The Fund will partially settle the Forward Agreement prior to the Forward Agreement termination date in order to fund quarterly distributions as well as redemptions of Fund Units by Unitholders from time to time and for payment of expenses of the Fund. The Forward Agreement has a scheduled termination settlement date (the Forward Termination Date ) of June 19, The Fund, like many closed-end funds in Canada, utilizes a forward agreement that is considered to be a tax advanced strategy. On March 21, 2013, the Government of Canada introduced a budget proposal that will have a significant impact on investment funds that employ such tax advantages strategies referred to as character conversions in the budget. The Fund will monitor guidance as issued by the Federal Government with respect to the implementation of the budget proposals as certain grandfathering provisions were proposed for forward agreements entered into prior to March 21, 2013 provided the term of the forward agreement is not extended thereafter. As at June 30, 2013, the unrealized gain on the Forward Agreement at fair value was $1,919,847. This unrealized gain represents the difference as at June 30, 2013 between the net asset value of the Common Share Portfolio of $125,838,922 and the net asset value of the Trust of $127,758,769. For financial statement reporting purposes, the value of the Common Share Portfolio includes the investments measured in accordance with Section 3855 of the CICA Handbook, which for publicly-listed securities is based on closing bid prices for securities held long and on closing ask prices for securities held short, on a recognized stock exchange on which the investments are listed or principally traded. The following table reconciles the value of the Common Share Portfolio for financial reporting purposes to the fair value of the Forward Agreement: 2013 Interim Financial Statements 14

16 As at June 30, 2013 As at December 31, 2013 $ $ Fair value of the Common Share Portfolio, at closing bid prices 125,414, ,056,636 Valuation adjustment to the Common Share Portfolio to closing prices 424, ,087 Value of the Common Share Portfolio, at closing prices 125,838, ,446,723 Fair value of the Trust, at closing bid prices 127,654, ,371,336 Valuation adjustment to the Trust to closing prices 104, ,820 Net asset value of the Trust at closing prices 127,758, ,474,156 Gain (Loss) on Forward Agreement, at fair value 1,919,847 (972,567) The investments of the Common Share Portfolio as at June 30, 2013 were as follows: Number of Average Cost Fair Value Shares Security $ $ 807,469 Athabasca Oil Corp. 8,379,439 5,248, ,846 Canfor Corp. 5,743,102 8,999, ,886 CGI Group Inc., Class 'A' 10,397,740 13,486,967 1,043,495 Detour Gold Group 12,177,587 8,598, ,112 First Majestic Silver Corp. 7,578,180 6,827, ,129 MEG Energy Corp. 10,399,027 8,160,185 1,062,032 New Gold Inc. 10,832,726 7,168, ,920 Paramount Resources Ltd., Class 'A' 10,396,705 14,861, ,094 Tahoe Resources Inc. 10,401,649 8,182, ,636 Tourmaline Oil Corp. 10,397,713 16,616,712 1,217,272 Transglobe Energy Corp. 9,967,907 7,936, ,803 Valeant Pharmaceuticals International Inc. 10,397,817 19,327,791 Total investments of the Common Share Portfolio 117,069, ,414,531 The investments of the Common Share Portfolio as at December 31, 2012 were as follows: Number Average Cost Fair Value of Shares Security $ $ 1,049,099 Athabasca Oil Corp. 10,886,933 10,942, ,811 Canfor Corporation 10,870,394 15,165, ,791 CGI Group Inc. 10,869,313 10,515, ,015 MEG Energy Corp. 10,870,651 9,035,196 1,110,196 New Gold Inc. 11,323,999 12,145, ,324 Open Text Corporation 10,865,257 11,962,717 1,344,624 Osisko Mining Corp. 10,870,156 10,676, ,873 Paramount Resources Ltd. 10,868,204 13,949, ,269 Tahoe Resources Inc. 10,873,392 10,549, ,579 Tourmaline Oil Corp. 10,869,273 12,874, ,499 Valeant Pharmaceuticals International Inc. 10,869,360 13,240,081 Total investments of the Common Share Portfolio 120,036, ,056, Interim Financial Statements 15

17 5. MANAGEMENT OF FINANCIAL RISKS Through the Forward Agreement described in Note 4, the Fund is economically exposed to financial risks of the Portfolio held by the Trust, which is comprised primarily of North American high yield debt. The Fund and the Trust are exposed to various financial risks, including market risk (consisting of currency risk, interest rate risk, and other price risk), credit risk and liquidity risk. The Fund and the Trust s overall risk management programme seeks to minimize potentially adverse effects of those risks on the Fund s financial performance by employing experienced portfolio managers and by continuous monitoring of the Fund and Trust s securities positions and markets. The Manager maintains a corporate governance structure that oversees the Fund and the Trust s investment activities. The Trust may use derivative financial instruments to mitigate certain risk exposures and is currently engaged in a series of foreign exchange contracts as described below. Currency risk Currency risk is the risk that the value of an investment will change due to fluctuations in foreign exchange rates. The Funds net assets are measured in Canadian dollars and payments to Unitholders are made in Canadian dollars. The Trust is exposed to currency risks as it may hold assets or have liabilities denominated in currencies other than in Canadian dollars. As at June 30, 2013, the Trust was exposed to currency risk as the value of any assets or liabilities denominated in currencies other than the Canadian dollar will vary due to changes in foreign exchange rates. Currency risks of the Trust can be mitigated with the use of forward foreign currency contracts. The following tables summarize the Trust s exposure to foreign currency as at June 30, 2013: Investments Cash Other Net Assets/ (Liabilities)* Foreign Currency Contracts Total Net Asset June 30, 2013 $ $ $ $ $ % U.S. Dollar 153,772,282 3,107,574 (10,891,050) (154,886,044) (8,897,237) (6.97) Euro 16,571, ,951 (16,808,572) 119, British Pound 6,585, ,084 (6,514,140) 214, Swiss Franc 1,026,834-25,589 (793,603) 258, Total 177,955,447 3,107,574 (10,364,425) (179,002,358) (8,303,762) (6.50) *Other Net Assets includes borrowings of $10,639, Interim Financial Statements 16

18 The following tables summarize the Trust s exposure to foreign currency as at December 31, 2012: Other Net Assets/ (Liabilities)* Foreign Currency Contracts Total Net Asset Investments Cash December 31, 2012 $ $ $ $ $ % U.S. Dollar 141,063, ,392 (7,336,117) (140,432,333) (6,569,082) (4.62) British Pound 16,297,362 92, ,894 (6,079,416) 10,745, Euro 6,063, , ,043 (1,629,434) 4,711, Swiss Franc 1,023,655-24,965 (992,561) 56, Total 164,448, ,766 (6,720,215) (149,133,744) 8,944, *Other Net Assets includes borrowings of $9,988,227. As at June 30, 2013, had the Canadian dollar strengthened or weakened by 1% against each of the other currencies with all other variables remaining constant, the net assets of the Trust would have increased or decreased by $83,038 (December 31, 2012 decreased or increased by $89,447). Not less than 70% of the Portfolio s investments denominated in currencies other than the Canadian dollar are hedged back to Canadian dollar. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. As at June 30, 2013 and December 31, 2012, the Fund did not hold short-term deposit notes or other interest-bearing securities. The Trust is exposed to interest rate risk from its holdings of fixed-rate debt instruments, the values of which fluctuate due to changes in prevailing levels of market interest rates. As at June 30, 2013, the Trust s debt instruments remaining terms to maturity were as follows: June 30, 2013 Net Assets Debt Instruments $ % Less than 1 year 1 to 3 years 5,299, to 5 years 36,934, Greater than 5 years 132,556, Total 174,790, As at December 31, 2012, the Trust s debt instruments remaining terms to maturity were as follows: December 31, 2012 Debt Instruments $ Net Assets % Less than 1 year 1 to 3 years 1,167, to 5 years 28,444, Greater than 5 years 134,473, Total 164,085, Interim Financial Statements 17

19 Interest rate risk of the Trust is currently mitigated by the relatively short duration and high credit spread of the high yield bonds in the Portfolio. These characteristics make the Portfolio s sensitivity to interest rate risk relatively less than what would be experienced by a portfolio with longer duration investments that trade at tight spreads to government-backed fixed income securities. It would also be possible to hedge interest rate risk by shorting government-backed fixed income securities or engaging in various interest rate derivatives. As at December 31, 2012, the Trust had no such hedges in place. At June 30, 2013, if the prevailing interest rates had risen or declined by 0.25%, assuming a parallel shift in the yield curve, with all other variables held constant, the Trust s net assets would have decreased or increased, respectively, by approximately $2,459,107 (December 31, $2,213,696). The Trust s sensitivity to interest rate changes was estimated using the weighted average duration of the bonds. In practice, the actual results may differ from this sensitivity analysis and the differences could be material. Other price risk Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk). Such changes may be the result of factors affecting multiple instruments traded in a market, market segment or asset class. Although the Fund s Common Share Portfolio is comprised of equity securities that are subject to market price risk and the value of the Forward Agreement will fluctuate as a result of changes in market conditions, the Fund itself is not exposed to other price risk of the Common Share Portfolio as it is collateral for the Forward Agreement. The Trust is exposed to other price risk of securities held in the Portfolio. The Trust may take outright long or short positions in any of its investments, which may include derivative instruments for purposes consistent with its investment objectives and investment strategy and subject to its investment restrictions. As at June 30, 2013, the Trust had no direct exposure to derivatives to mitigate price risks other than the currency swaps described above and had no securities sold short; however, all investments in securities present a risk of loss of capital. The Investment Manager seeks to mitigate this risk through careful selection of securities and other financial instruments. Credit risk Credit risk is the risk of non-payment of scheduled interest and/or principal payments. As at June 30, 2013, the Fund did not hold short-term deposit notes or other interest-bearing securities. The Fund was exposed to credit risk through the Counterparty of the Forward Agreement. The Manager believes the Fund had minimal credit risk exposure due to the strong credit rating of the Counterparty. The Trust is exposed to several types of credit risks including the risk that one or more investments in the Portfolio will decline in price, or fail to pay interest or principal when due, because the issuer of the security experiences a decline in its financial status. As at June 30, 2013, the maximum exposure to any one debt issuer in the Portfolio was $3,334,061 representing 2.62% of net assets. The performance of the Trust is also subject to general economic and specific industry conditions that could impact the fair value of one or more debt securities in the Portfolio. Securities with lower ratings tend to be more sensitive to these kinds of risks Interim Financial Statements 18

20 As at June 30, 2013, the Trust was invested in debt securities with the following credit ratings: As at June 30, 2013 Net Assets Total Debt Instruments by S&P Rating* % $ A ,657,709 BB ,327,156 BB ,129,639 BB ,800,878 B ,962,517 B ,115,395 B ,350,069 CCC ,229,545 CCC ,965,416 CCC ,903 CC ,953 Not rated** ,389,302 Total ,790,481 As at December 31, 2012, the Trust was invested in debt securities with the following credit ratings: As at December 31, 2012 Debt Instruments by S&P Rating* Net Assets % BBB+ or better ,635,761 BBB BBB- BB ,788,407 BB ,387,975 BB ,484,254 B ,262,849 B ,636,600 B ,537,160 CCC+ or lower ,775,049 Not rated** ,576,979 Total ,085,034 Total $ * Or, if not rated by S&P, the comparable rating from Moody s Investors Service ** Not rated by Standard & Poor s or Moody s Investors Service The Investment Manager seeks to mitigate the above credit risk through the careful selection of investments, through the employment of experienced portfolio managers and through continuous monitoring of the Trust s securities positions and markets. Another type of credit risk is exposure to the creditworthiness of the Fund and the Trust s trading counterparties. All securities transactions executed by the Fund and Trust are settled upon delivery using approved brokers. The risk of payment default is considered negligible, as delivery of securities sold is only made once the broker has received payment on behalf of the Fund or Trust. Payment is not made on a purchase until the securities have been received by the broker on behalf of the Fund or Trust. The trade will fail if either party fails to meet its obligation. The Trust may enter into forward foreign currency exchange contracts primarily to hedge against foreign currency exchange rate risks on its non-canadian dollar denominated investment securities. In addition to currency and market risk, forward foreign currency exchange contracts involve risks arising 2013 Interim Financial Statements 19

21 from the possible inability of counterparties to meet the terms of their contracts from movement in currency, security values, and interest rates. The Trust seeks to mitigate this risk through the careful selection of its derivative counterparties. Liquidity risk Liquidity risk is the risk that the Fund may not be able to settle or meet its obligation on time or at a reasonable price. The Fund maintains liquidity through its ability to carry out partial settlements of the Forward Agreement. The Trust has current financial liabilities outstanding, including but not limited to, margin loans and interest payable on its margin loans, accounts payable and accrued liabilities. The Manager seeks to mitigate this liquidity risk by ensuring that a reasonable portion of the Trust s investments trade in active markets and can be sold readily. There can be no assurance that an adequate market for the investments will exist at all times, or that the prices at which the investments trade, accurately reflect their fair value. Low trading volumes of the investments could also make it difficult to liquidate holdings quickly. 6. BORROWINGS In August 2012, the Trust established the ability to borrow using a prime brokerage account. The Trust subsequently added leverage to the Portfolio through the margining of certain securities. Leverage is restricted to 33% of the total assets of the Trust. Accordingly, at the time of borrowing, the maximum amount of leverage that the Trust could employ is 1.50:1 (total long positions, including leveraged positions, divided by net assets of the Trust). As at June 30, 2013, the Trust had employed leverage equal to 27.7% (December 31, %) of the total assets of the Trust, equating to $50.7 million (December 31, $39.3 million). The minimum and maximum amount of borrowings outstanding during the six months ended June 30, 2013 was $39.2 and $50.7 million, respectively. The minimum and maximum amount of borrowings outstanding during the period from June 19, 2012 to December 31, 2012 was $0 and $39.3 million, respectively. The borrowings were used to grow the Trust s investments and for working capital needs. Adding a controlled amount of leverage to the Trust is consistent with the Trust s objectives. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The CICA Handbook Section 3862 Financial Instruments Disclosures ( Section 3862 ) requires enhanced disclosure of fair value and liquidity risk. This includes classification of the fair value measurements associated with the financial instruments held by a fund. The classifications use a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The hierarchy has the following levels: quoted prices in an active market (Level 1 unadjusted inputs); inputs other than quoted prices (Level 2 directly or indirectly derived from observational market data); and inputs not based on observable market data (Level 3 unobservable inputs). In addition to the above disclosure requirements, Section 3862 requires disclosure of significant transfers between Levels 1 and 2 since the prior reporting period, as well as reconciliation of Level 3 assets, disclosing separately changes during the reporting period attributable to i) total gains or losses recognized in net investment income, and a description of where they are presented in the income statement, ii) purchases, sales, issues and settlements, and iii) transfers into or out of Level 3 and the reasons for those transfers. Any significant transfers between Level 1 and Level 2 are disclosed. Further, for fair value measurements in Level 3, if changing one or more type of the inputs to reasonably possible alternative assumptions would change fair value significantly, the entity shall state this fact and disclose both the effect of those changes and how the effect was calculated. The following tables provide a summary of the inputs used as at June 30, 2013 and December 31, 2012 in valuing the Fund s and the Trust s investments carried at fair value: 2013 Interim Financial Statements 20

22 Brookfield High Yield Strategic Income Fund As at June 30, 2013 Level 1 Level 2 Level 3 Total $ $ $ $ Investments, at fair value: Equities 125,414, ,414,531 Forward agreement 1,919,847 1,919,847 Total Investments, at fair value 125,414,531 1,919, ,334,378 As at December 31, 2012 Level 1 $ Level 2 $ Level 3 $ Investments, at fair value: Equities 131,056, ,056,636 Forward Agreement (972,567) (972,567) Total Investments, at fair value 131,056,636 (972,567) 130,084,069 Regarding Level 3 investments, management has determined that the impact on fair values from using reasonable alternative assumptions would not be significant. High Yield Strategic Trust Total $ Level 1 Level 2 Level 3 Total As at June 30, 2013 $ $ $ $ Investments, at fair value: Equities 3,164,967 Fixed Income Corporate bonds Asset-backed and Mortgage-backed securities Term loans 162,925,307 8,475,871 3,389,302 Total Investments, at fair value 3,164, ,790,481 3,164, ,925,307 8,475,871 3,389, ,955,447 Level 1 Level 2 Level 3 Total As at December 31, 2012 $ $ $ $ Investments, at fair value: Equities 363,898 Fixed Income Corporate bonds Asset-backed and Mortgage-backed securities 153,674,717 10,410,317 Total Investments, at fair value 363, ,085, , ,674,717 10,410, ,448, Interim Financial Statements 21

23 The following table summarizes changes in the Level 3 assets of the Fund for the six months ended June 30, 2013 and for the period June 19 to December 31, 2012: Brookfield High Yield Strategic Income Fund Level 3 For the six months ended June 30, 2013 $ Beginning balance, December 31, 2012 (972,567) Total gains Net realized gains - Net unrealized appreciation 2,892,414 Net transfers into (out of) Level 3 assets - Ending balance, June 30, ,919,847 For the period June 19 to December 31, 2012 Beginning balance, June 19, 2012 Purchases, issuances and settlements Total gains Net realized gains Level 3 $ Net unrealized depreciation (972,567) Net transfers into (out of) Level 3 Ending balance, December 31, 2012 (972,567) During the period, there were no Level 3 assets held by the Trust, nor movements in or out of the category. 8. INCOME TAXES The Fund qualifies as a mutual fund trust under the Income Tax Act (Canada) and, accordingly, is not subject to tax on that portion of its income, including net realized capital gains for its taxation year that is paid or payable to Unitholders. Income tax on net realized capital gains not paid or payable will be generally recoverable by virtue of refunding provisions contained in the Income Tax Act (Canada) and provincial income tax legislation, as redemptions occur. It is the intention of the Fund to pay all net taxable income and sufficient net taxable gains so that the Fund will not be subject to income taxes. The Fund may distribute more than it earns, in which case the excess distribution is a return of capital and is not taxable to Unitholders. No provision for income taxes has been recorded in the accompanying financial statements as all income and net realized capital gains are to be distributed to the Unitholders. Capital losses realized in excess of those utilized to offset realized capital gains in the current taxation year can be carried forward indefinitely and may be applied against future years capital gains. Non-capital losses may be carried forward for a period of 20 years and applied against future years taxable income. As at December 31, 2012, the Fund had $501,703 in non-capital losses which will expire in EXPENSES OF THE FUND An annual management fee equal to % per annum of the net asset value of the Fund, calculated daily and payable monthly in arrears, plus an amount calculated quarterly and paid as soon as practicable after the end of each calendar quarter, equal to the service fee (the Service Fee ), plus applicable taxes, is paid to the Manager. As well, an annual management fee of % based on the net asset value of the Trust, calculated daily and payable monthly in arrears, is paid to the Manager (total overall annual management fee to the Funds of 1.25% excluding the Service Fee). The 2013 Interim Financial Statements 22

24 management fee excluding the Service Fee, totaled $229,331 and for the Fund and $690,740 for the Trust for the six months ended June 30, The Manager pays to registered dealers the Service Fee equal to 0.50% annually of the net asset value per Unit for each Unit held by clients of the registered dealers, calculated and paid at the end of each calendar quarter, plus applicable taxes. The Service Fees totaled $324,718 for the six months ended June 30, The Manager is also eligible in each fiscal year to receive from the Trust a performance fee (the "Performance Fee") that shall be calculated and accrued monthly and be paid annually, if applicable. The Performance Fee for a given year will, subject to some exceptions regarding redemptions and issuances of units of the Trust, be equal to 15% of the amount by which the net asset value per unit of the Trust (calculated without taking into account any Performance Fee) exceeds 106.5% of the Threshold Amount. The Threshold Amount will be the greater of: (i) $10.00; and (ii) the net asse t value per unit of the Trust at the end of the last fiscal year in which a Performance Fee was paid (after payment of such Performance Fee). Please refer to the Fund s Prospectus for additional information on the Performance Fee. No Performance Fee has been collected since the inception of the Fund. Under the Forward Agreement, the Fund will pay to the Counterparty an annual fee of no greater than 0.50% of the net asset value of the Fund plus a hedge fee, which may vary, based on the value of the Common Share Portfolio, calculated and payable monthly in arrears. The forward fees totaled $350,377 for the Fund for the six months ended June 30, The hedge fee is intended to compensate the counterparty for the costs of hedging its exposure under the Forward Agreement. The hedging fees totaled $111,515 for the Fund for the six months ended June 30, The Fund pays for all ordinary expenses incurred in connection with its operation and administration, including but not limited to, fees payable to the Manager, administrator, custodian and other third party services providers, legal, accounting, audit and valuation fees and expenses. The Fund will also pay any extraordinary expenses which it may incur from time to time. 10. RELATED PARTY DISCLOSURE The Manager and the Investment Manager are wholly-owned subsidiaries of Brookfield Asset Management Inc. ( Brookfield ) and the Investment Manager manages the investment and trading activities of the Funds pursuant to a management agreement. Due to Brookfield s ability to control the Funds, Brookfield, and its affiliates over which it has the ability to exercise control or significant influence, are related parties of the Funds by virtue of common control or common significant influence. Transactions with related parties, including investment transactions, are conducted in the normal course of operations and are recorded at exchange amounts, which are equivalent to normal market terms. Please refer to Note 9, Expenses of the Fund, which outlines the fees paid to the Manager by the Funds. During the year ended December 31, 2012, the Trust entered into cross transactions with Brookfield Global High Yield UCITS Fund which is a related party of the Trust due to common control. The Investment Manager determined that these cross transactions complied with the Trust s investment restrictions and that owning such securities was consistent with the Trust s investment objectives. The Manager sought the approval of the Trust s Independent Review Committee (the IRC ) of the proposed cross transactions. The IRC provided its approval on the proposed cross transactions on the Manager s recommendation. As at June 30, 2013, Brookfield and its affiliates own a 7.74% interest in the Fund. There were no other transactions conducted with related parties during the six month period ended June 30, 2013 and the twelve month period ended December 31, Interim Financial Statements 23

25 11. UNITHOLDERS EQUITY The Fund is authorized to issue an unlimited number of redeemable and transferable Units of a single class, each of which represents an equal, undivided interest in the net assets of the Fund. Each Unit is entitled to one vote at all meetings of Unitholders and is entitled to participate equally with respect to any and all distributions made by the Fund, including distributions of net income and net realized capital gains, and distributions upon the termination of the Fund. Units are issued only as fully paid and are non-assessable. The Declaration of Trust provides that the Fund may not issue additional Units except: (i) for net proceeds not less than 100% of the net asset value per Unit calculated as of the close of business on the business day immediately prior to the pricing of such offering; (ii) by way of Unit distributions; or (iii) with the approval of Unitholders. Commencing in July 2014, Units may be surrendered annually for redemption during the period from June 15th until 5:00 p.m. (Toronto tim e) on the 10th business day in July of each year (the Notice Period ) if and only if the annual redemption condition (the Annual Redemption Condition ), described below, has been met in such year. Units properly surrendered for redemption during the Notice Period will be redeemed on the last business day in July of each year (the Annual Redemption Date ) and the Unitholder will receive a redemption price per Unit equal to 100% of the net asset value per Unit as determined on the Annual Redemption Date on or before the 15th business day of the month following the Annual Redemption Date, less any costs and expenses incurred by the Fund in order to fund such redemption, if any, including costs related to the partial settlements of the Forward Agreement. The Annual Redemption Condition states that Units may only be redeemed on an Annual Redemption Date if the simple average of the Net Asset Values of the Units on each of the Thursdays occurring in the month of May preceding the Annual Redemption Date is less than $ On the first business day following the last Thursday in the month of May, the Manager will issue a press release stating the average Net Asset Value per Unit and whether the Annual Redemption Condition has been triggered. 12. CAPITAL TRANSACTIONS Changes in the number of Units outstanding for the Fund for the six months ended June 30, 2013 and for the period from June 19, 2012 to December 31, 2012 consisted of the following: Six months ended June 30, 2013 For the period June 19, 2012 to December 31, 2012 Beginning balance 12,925,000 - Subscription of Units - 12,925,000 Redemption of Units - - Number of Units outstanding, end of period 12,925,000 12,925,000 Capital management Units issued and outstanding represent the capital for the Fund. The Fund has no restrictions or specific capital requirements and is authorized to issue an unlimited number of transferable Units. Restrictions and specific requirements on the redemption of Units are described in Note 11. The Statement of Changes in Net Assets and the above table outline the relevant changes of the Fund s Units for the Period. The Fund manages its capital in accordance with its investment objectives and strategies and the risk management practices outlined in Note 5 while maintaining sufficient liquidity to meet Unitholder redemptions Interim Financial Statements 24

26 13. DISTRIBUTIONS In accordance with the Fund s investment objective to provide Unitholders with quarterly cash distributions, the Fund intends to make quarterly distributions to Unitholders of record on the last business day of March, June, September and December (each, a Distribution Record Date ). Distributions will be paid on a business day designated by the Manager that will be no later than the 15th business day of the month following the Distribution Record Date. The initial quarterly distributions are targeted to be $ per Unit ($0.65 per annum representing an annual cash distribution of 6.5% based on the $10.00 per Unit issue price). During the six months ended June 30, 2013, the Fund paid two quarterly distributions of $ per Unit each. A cash distribution of $ per Unit was declared on June 26, 2013 for Unitholders of record on June 28, Distributions payable as of June 30, 2013 totalled $2,100,313 (December 31, $2,100,313). The distribution was subsequently paid to Unitholders in early July The Fund does not have a fixed quarterly distribution. In any year after such distributions, there would otherwise remain in the Fund additional net income or net realized capital gains, the Fund intends to make, on or before December 31 of that year, a special distribution of such portion of the remaining net income and net realized capital gains as is necessary to ensure the Fund will not be liable for income tax under the Income Tax Act (Canada). 14. FORWARD CURRENCY CONTRACTS As at June 30, 2013, the Trust had entered into forward currency contracts with a fair value of a loss of $5,870,745 to deliver currencies at specified future dates as follows: Unrealized As at June 30, 2013 Maturity Gains /(Losses) Foreign Exchange Contracts Date $ Bought CAD 153,858,608; Sold USD July 22, 2013 (5,670,795) Bought CAD 16,808,572; Sold EUR July 22, 2013 (204,447) Bought CAD 6,514,140; Sold GBP July 22, 2013 (16,179) Bought CAD 793,603; Sold CHF July 22, 2013 (9,681) Bought CAD 1,027,436; Sold USD July 22, 2013 (1,616) Bought USD 3,945,000; Sold CAD July 22, ,973 Total (5,870,745) 15. FUTURE ACCOUNTING CHANGES International Financial Reporting Standards ( IFRS ) replaced Canadian GAAP for publicly accountable enterprises other than investment funds. Under the general transition rules, publicly accountable enterprises, other than investment funds, adopted IFRS for the fiscal period beginning January 1, On September 7, 2010, the Canadian Accounting Standards Board ("AcSB") approved an optional one year deferral of IFRS adoption for investment companies applying Accounting Guideline AcG 18, Investment Companies until fiscal years beginning on or after January 1, On January 12, 2011, the AcSB approved an additional one year extension to the optional one year deferral until fiscal years beginning on or after January 1, 2013 and in December 2011 was further extended to January 1, Accordingly, the Fund will adopt IFRS no later than for the fiscal year beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, no later than for the interim period ending June 30, Interim Financial Statements 25

27 FUND INFORMATION MANAGER AND TRUSTEE Brookfield Investment Management (Canada) Inc. George E. Myhal Director, President & Chief Executive Officer Jonathan Tyras Managing Director, Chief Financial Officer, and General Counsel Gail Cecil Director, Managing Director Kim G. Redding Director INDEPENDENT REVIEW COMMITTEE John P. Barratt (Chair) Corporate Director James L. R. Kelly President Earth Power Inc. Frank Lochan Corporate Director CONTACT INFORMATION Brookfield High Yield Strategic Income Fund welcomes inquiries from Unitholders, analysts, media representatives or other interested parties. Investment Manager Brookfield Investment Management Inc. Brookfield Place 250 Vesey Street New York, New York t w. Transfer Agent and Registrar Unitholder inquiries relating to distributions, address changes and Unitholder account information should be directed to the Fund s Transfer Agent: Valiant Trust Company 710, 130 King Street West Toronto, Ontario M5X 1A9 t (toll-free North America) f (toll-free North America) International e. inquiries@valianttrust.com w Interim Financial Statements 26

28